A person who can save at 8 percent interest decided to subscribe to a magazine.A 1-year subscription costs $12, a 2-year subscription $22.What is the cost to her of the second year?

Question

Quizplus · Accepted Answer

The cost of the second year can be calculated by subtracting the cost of the first year from the total cost of a 2-year subscription. The first year costs $12, so the second year costs $22 - $12 = $10. However, since the person can save at 8 percent interest, the actual cost to her is the opportunity cost of not investing that $10. Therefore, the cost of the second year is $10 plus 8% of $10, which equals $10 + ($10 * 0.08) = $10 + $0.80 = $10.80.

A Person Who Can Save at 8 Percent Interest Decided